Search ForexCrunch

Bloomberg News reports that economists are increasingly counting on the European Central Bank to cut interest rates on Thursday, with Deutsche Bank AG and JPMorgan Chase & Co. joining colleagues at HSBC Holdings Plc and Oxford Economics in predicting reductions.

Key paragraphs

ECB President Christine Lagarde “will be aware that her first big policy decision will shape perceptions of her approach, and therefore it now makes sense to err on the side of a bigger response, given the deteriorating backdrop,” Greg Fuzesi, an economist at JPMorgan in London, said in a note to clients on Monday.

The ECB holds a scheduled policy meeting in Frankfurt this week, and investors expect a 10 basis point rate cut to the deposit rate, though economists still are divided if the Governing Council will act. Some are also predicting bond purchases will be boosted and a measure to direct liquidity to struggling small firms looks likely.

FX implications

The focus is on the US dollar and euro. The euro rallied to just shy of the 1.15 handle overnight on the back of the crash in US yields and various weekend news that fuelled prospects of further easing from the Federal Reserve. Should he ECB cut rates and given the drop in global oil prices, the dollar could find some support as the Fed would be pressured to do less – potentially weighing on the euro. 

  • DXY: It may only be a matter of time when US dollars are back by popular demand